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Our View - Competition And Airline Access


"Let Nothing Soar Above National Interest"

It is now nearly 12 months since the Government announced the findings of its Aviation Review, including its decision not to allow Singapore Airlines to fly the Trans-Pacific route. This comprehensive review examined Australia's developing aviation industry and considered the national interest.

Based squarely on that Cabinet review and resolution, Virgin Blue took a decision to invest over $1 billion to equip and launch a new international airline for Australia.

We will launch that airline in 2008. We will create more Australian jobs, bring more tourists and provide choice and vigorous competition on the Trans Pacific route.

It will be the most significant, material investment we have yet made and our largest exposure to date. We would not undertake such a challenge without believing that we will be successful.

Which is why we are moved to comment on the comments of West Australian Liberal Senator Alan Eggleston, Liberal MP Geoff Prosser and fund manager Kerr Neilson calling for the opening of the Pacific route to increased competition. (The Australian, February 6 2007).

Disappointingly they disregarded Virgin Blue, one of Aviation's success stories, and an airline that has already raised its hand to compete in this market and proven it can do so.

Perhaps they do not understand the imbalance that already exists between Australia and other countries regarding air rights access?

Perhaps they have not considered Virgin Blue's track record, they question our ability to deliver or have not flown on us to date? Perhaps unlike the vast majority of their constituents, they are simply used to First Class?

Since Virgin Blue entered the market six years ago, with 2 planes and 200 staff, we have demonstrated our contribution as the indispensable competitor.

Today we serve over 30% of the Australian domestic market, we pay $225 million in Australian taxes annually and we operate 315 flights daily to 22 Australian destinations, New Zealand and the Pacific.

We are also a publicly listed company, we're 73% Australian owned and already more Australian than Qantas.

We noted with amusement comments by Singapore Airlines 49% percent owned Tiger Airways last Friday announcing an intention to "deliver Australians genuine low fares".

Since Virgin Blue entered the market six years ago, the average cost of domestic airfares in Australia has reduced by more than 40 per cent. We have opened new air routes, new city pairs, brought jets to regional centres for the first time, we are doing our best to help boost tourism, and we have given Australia differentiation in domestic air travel.

Surely these are the kind of benefits for tourism and our economy that Australia needs. And we do not need to cede a national asset to get them, certainly not for nothing in return.

The fact is Australia is one of the most progressive nations on Aviation reform. Singapore Airlines and its investment Tiger Airways are well aware of that.

Foreign airlines have access to the entire Australian domestic aviation market. Under Foreign Investment Review Board guidelines they can acquire up to 100% of the equity in an Australian airline or establish a new domestic carrier subject only to a simple national interest test.

But similar opportunities are not available to Australian carriers overseas.

If Virgin Blue wanted to fly from Singapore, we would be required to be majority owned by Singapore nationals and our access would be determined by third countries under the air services treaties. A level playing field - no chance!

The world of Aviation bi-laterals is a political quagmire full of self interest and it needs reform, but not unilaterally on Australia's part. Australia's airlines are far from protected.

The only leverage Australia has left to ensure that our country does not lose a local airline industry is to use what few positions of leverage remain (eg the Trans-Pacific) and to cede our valuable assets only as part of a grander global negotiation.

Virgin Blue is an Australian solution to increased competition. No-one should underestimate our determination, our long term intent, nor the multi-faceted contribution we will make to the Australian economy.

Does anybody really believe that Singapore Airlines or any other privileged foreign airline would make such a contribution?

And why the single-minded focus on entering and exploiting one of our most important air routes? Publicly, the stated reason is in the interests of 'competition'.

Yet the same carriers that preach to Australians about the benefits of competition do so from the safety of highly protective government policies and with the advantage of material tax and financing benefits and in some cases Government backing.

Virgin Blue believes strongly in competition, so long as it is fair.

What would not be fair, nor clever would be to openly invite these privileged international airlines to cherry pick and compete with Australian start up carriers, without considering the findings of the 2006 Aviation Review.

If there is a time to open even further access to Singapore Airlines then surely it is when equally valuable or equal levels of access are afforded to Australian carriers.

The fact is the Trans-Pacific route is already wide open to competition. Today there are more than 20 recognised airlines already eligible to fly this market. The truth is that some of these legacy airlines have already tried and failed because they tried to offer a similar product to Qantas or a Singapore Airlines.

What is needed is a new model.

Virgin Blue will start with a clean sheet, differentiated.

And if we're wrong? If a proven player like Virgin Blue can't cut it, then surely that would be the time to undertake another Aviation Review, not 11 months after the last review.

Our Federal Government understands that. Many cities, regional tourism centres, communities and partner companies understand that.

Soon we will announce a fleet decision, and in unveil our product and operating plans.

Surely it's time to get the fact that more and major competition is coming. It is coming from Virgin Blue, an Australian airline that pays its taxes here; employs 4,000 Australians, and will employ many more under an environment of fair competition when we fly to the USA.

Brett Godfrey

Co-Founder and Chief Executive Officer